Volkswagen’s Q1 Profit Falls As Namesake Brand Continues To Struggle
Volkswagen AG (OTCMKTS:VLKAY) reported its Q1 results on May 31, and as expected, lower volume sales, unfavorable currency impact, and lower profit from its joint ventures in China — its single largest market — ate into the German company’s profit.
Deliveries to customers rose just 0.8% year-over-year in Q1, while overall revenue fell. This decline trickled down to the operating profit, and further compressed Volkswagen’s already narrow operating margin. For comparison, Toyota operates at over a 10% operating margin. The namesake passenger car brand remained the main reason why Volkswagen’s overall margin remained low. Only after the one-time addition of special items, associated with adjustments related to the dieselgate scandal, did the operating margin grow to 6.8% for the quarter.
Revenue for Volkswagen Passenger Cars dropped 4.6% in Q1, on 4.3% fewer vehicles sales (excluding the Chinese JVs). Lower sales, higher marketing costs as a consequence of the emissions scandal, and unfavorable exchange rates kept the brand’s operational return on sales extremely low. In view of the consistent weak operating performance of its namesake brand, Volkswagen is expected to announce plans of cost cuts and implementation of efficiency programs at its namesake brand, in addition to restructuring its global brands, this month, when it announces its Strategy 2025.
In addition, Volkswagen’s proportionate operating profit of the Chinese joint ventures fell 26.5% to $1.31 billion in the first quarter, although deliveries rose by over 6% in the country. The group has struggled in the country where demand for budget vehicles, especially SUVs and Crossovers, continues to rise. Sales of passenger cars rose 6.7% year-over-year in China through April, with SUV sales up by more than 45%. Volkswagen is also continuing to invest heavily in the country, irrespective of its cost-cutting plans. Volkswagen will invest over 4 billion euros ($4.5 billion) in China in 2016, spending on its new SUVs and plug-in models in the country. The group plans to introduce 10 SUV models to be manufactured locally within four years.
2016 is going to be a challenging year for Volkswagen, which is battling with the aftermath of the emissions issues and is continuing to negotiate a settlement with U.S. authorities and plaintiffs’ attorneys in class-action lawsuits representing customers affected by the emissions scandal in the U.S.
Have more questions on Volkswagen? See the links below.
- Where Will Volkswagen’s Revenue And EBITDA Growth Come From Over The Next Three Years?
- By What Percentage Have Volkswagen’s Revenues And EBITDA Grown Over The Last Five Years?
- What Is Volkswagen’s Fundamental Value Based On Expected 2016 Results?
- How Much Have Big Auto Companies Been Investing In Growth Opportunities?
- Has The Emissions Scandal Impacted Volkswagen’s Volume Sales This Year?
- Rundown Of How Volkswagen’s 2015 Results Were Impacted By The Dieselgate Issue
- How Significant Will China Be For Volkswagen By 2020?
- Where Volkswagen Stands Relative To Its Competitors In Crucial Markets
- How Is Audi Holding Up Compared To Its Compatriots In Crucial Markets?
- How Has Volkswagen’s Revenue And EBITDA Composition Changed Over 2012-2016E?
- What Is Volkswagen’s Revenue And EBITDA Breakdown?
- Why Premium Brands Are 3x As Valuable As Non-Premium Brands For Volkswagen
- How Much Will Premium Brands Contribute To Volkswagen’s Top Line By 2018?
- How Does Volkswagen’s China Market Share Compare With Other Foreign Automakers’?
- How Much Does Volkswagen Make On The Sale Of One Porsche, Audi, Skoda And Volkswagen Vehicle?
Notes:
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)